Retirement
Income
Planning
What is Retirement Income Planning?
Over the last decade or so, a new financial planning specialty, “retirement income planning,” has been evolving to meet the income needs of retirees. Retirement income planning refers to converting a lifetime of savings into a steady paycheck that lasts for the rest of your life. It is less about maximizing returns and account balances and more about aligning your assets to adequately meet your future goals to create a sustainable, tax-efficient income stream.
When you are saving for retirement, the primary goal is to grow your account balances as much as possible. Most people accomplish this using a total return portfolio, which is completely invested in the capital markets.
Retirement income planning focuses on creating a sustainable income stream that lasts the rest of your life. There is a balance between meeting your retirement goals and protecting these goals from the unique risks of retirement.
Determining the best plan for your needs is largely based on your goals and income needs in retirement. There is no one solution that fits everyone. Everyone’s income plan will look different, requiring a personalized approach.
What are the major risks to my retirement income plan?
Within the context of planning for a lifetime income stream, there are a few unique risks that retirees need to consider. These risks generally fall into three categories:
Longevity risk
How long will your plan support your budgeted expenses?
Market and sequence of return risk
How vulnerable is your plan to market volatility? Will your initial portfolio returns impact your ability to spend?
Spending shocks
Will unexpected expenses like inflation or healthcare costs impact your budgeted income?
These risks are amplified in the five years before retirement and the first five years of retirement. This period is referred to as the “fragile decade” due to the outsized impact of spending shocks on a retirement income plan.
